CoSentry: A New Kind of Vblock Customer?

On Thursday, at the Omaha VMware User’s Group meeting, CoSentry announced they had entered into an partnership with VCE. CoSentry will be able to host your Vblock, deliver and implement a Vblock for you on your site or theirs, manage your Vblock for you and even let you consume capacity in a shared Vblock. It’s a great way to get the most leverage possible out of the investment they are making in the platform, and it’s very exciting to see. In addition to being a great win for the Omaha area, it’s an interesting case study into where I’m seeing more and more data center companies end up, and I wanted to share with you my insight.

CoSentry started as a colocation company back in 2000. They opened their first data center in 2001 and don’t seem to have slowed down since. Starting with BC/DR services, they have steadily added to their core portfolio to the point where they have a great set of offerings today, from security to managed services, virtual servers and infrastructure consolidation offerings. Without having any hard evidence about their customer mix, I’m willing to bet that enterprises LOVE the multiple, high quality data centers, and the mid-tier and SMB customers like using CoSentry as a complete IT outsourcer, letting them handle all of the IT functions while they focus on their businesses.

I can feel pretty comfortable in that assessment because, you see, I’ve watched this show before! Over my 6 year tenure at Peak 10 I saw the same transformation, from data center, to managed services to infrastructure/cloud services. I saw Managed Services skyrocket from ~4% of their total revenue to close to 30% when I left. It took time, but customers figured it out and it was up to Peak 10 to adapt and accommodate.

Peak 10 and CoSentry certainly aren’t the only ones playing that game. ViaWest and Windstream Hosted Solutions are both examples of companies that have evolved with the times and who now offer impressive portfolios of services to customers, as are Terremark and to some extent companies like Sungard. All are examples of companies that started at one side of the spectrum and followed the customers (and their money) to the other side, and all are successful companies who have been (or will be) acquisition targets.

On the other side, we have companies like Varrow, another local Charlotte company and an award-winning VAR for EMC, Cisco and others. Varrow had a similar problem, but in the other direction. As a fantastic reseller and integrator, they were running into customers who didn’t have capital dollars free, but who could spend op-ex. They also had a brand and a trusted advisor relationship with their customers that could be leveraged, so they branched out into Managed Services as well. Varrow is a group I know well, but I bet there are lots and lots of former VARs out there looking to expand into services, both to generate additional revenue, but also to create a monthly recurring revenue stream to smooth out the ups and downs that hardware sales can bring. Definitely a smart move, in my opinion, as long as you have the ability to back up your services with the right people, which Varrow certainly does.

With all of that in mind, where are the data center providers that also are VARs? From my research, CoSentry isn’t a VAR, although they can do the integration even on complex systems like the Vblock. Varrow doesn’t build or operate data centers, although they do lease space in one. Is that were the logical conclusion of this trend leads? On one hand, the investment model in data center space is easily modeled and predicted. The capital investment needed is typically the barrier to entry there. The VAR model is much, much more dependent on people and certifications, while managed services sits in the middle, requiring good people with good operational discipline. Does it make sense for a company to be able to own the transaction cycle with a customer from purchase to colocation to service? Maybe. What do you think?